Correlation Between Huntington Ingalls and Northrop Grumman

Can any of the company-specific risk be diversified away by investing in both Huntington Ingalls and Northrop Grumman at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Huntington Ingalls and Northrop Grumman into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Huntington Ingalls Industries and Northrop Grumman, you can compare the effects of market volatilities on Huntington Ingalls and Northrop Grumman and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Huntington Ingalls with a short position of Northrop Grumman. Check out your portfolio center. Please also check ongoing floating volatility patterns of Huntington Ingalls and Northrop Grumman.

Diversification Opportunities for Huntington Ingalls and Northrop Grumman

0.64

Correlation Coefficient

Huntington Ingalls  Northrop Grumman

Poor diversification

The 3 months correlation between Huntington and Northrop is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Huntington Ingalls Industries and Northrop Grumman in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northrop Grumman and Huntington Ingalls is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Huntington Ingalls Industries are associated (or correlated) with Northrop Grumman. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northrop Grumman has no effect on the direction of Huntington Ingalls i.e., Huntington Ingalls and Northrop Grumman go up and down completely randomly.

Pair Corralation between Huntington Ingalls and Northrop Grumman

Considering the 90-day investment horizon Huntington Ingalls Industries is expected to generate 0.67 times more return on investment than Northrop Grumman. However, Huntington Ingalls Industries is 1.49 times less risky than Northrop Grumman. It trades about 0.51 of its potential returns per unit of risk. Northrop Grumman is currently generating about 0.05 per unit of risk. If you would invest  18,331  in Huntington Ingalls Industries on February 4, 2025 and sell it today you would earn a total of  4,671  from holding Huntington Ingalls Industries or generate 25.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Huntington Ingalls Industries  vs.  Northrop Grumman

Huntington Ingalls

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Huntington Ingalls Industries are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain forward indicators, Huntington Ingalls demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Northrop Grumman

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Northrop Grumman are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Northrop Grumman is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Huntington Ingalls and Northrop Grumman

The main advantage of trading using opposite Huntington Ingalls and Northrop Grumman positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Huntington Ingalls position performs unexpectedly, Northrop Grumman can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Northrop Grumman will offset losses from the drop in Northrop Grumman's long position.

The idea behind Huntington Ingalls Industries and Northrop Grumman pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.